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Sheeran v. Nationwide Mutual Insurance Co.

Decided: July 17, 1979.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 163 N.J. Super. 40 (1978).

For affirmance as modified -- Chief Justice Hughes and Justices Sullivan, Pashman, Schreiber and Handler. For reversal as modified -- Justice Mountain. The opinion of the court was delivered by Pashman, J. Mountain, J., dissenting.


The main issue presented in this case is whether a company licensed to sell automobile insurance in this state may, consistent with the New Jersey Automobile Reparation Reform Act (No-Fault Act), N.J.S.A. 39:6A-1 et seq., and its accompanying regulations, N.J.A.C. 11:3-1.1 et seq., refuse to renew all policies issued in prior years without relinquishing its license. The Commissioner of Insurance, relying upon N.J.S.A. 39:6A-3 and N.J.A.C. 11:3-8.1, contends that it may not. Defendants both question the Commissioner's interpretation of the No-Fault Act and raise various defenses of constitutional dimension.

Defendants Nationwide Mutual Insurance Company (Nationwide) and Nationwide Mutual Fire Insurance Company (Nationwide Fire) are corporations licensed to sell various types of insurance in New Jersey. The former provides coverage for losses sustained as a result of automobile accidents, while the latter issues fire and homeowners' policies. Due to continuing business losses, in the fall of 1977 defendants decided to discontinue the sale of casualty and fire insurance in this state. On October 13, 1977 a letter to this effect was sent to their agents and policyholders. The letter stated that the companies would honor all contractual commitments previously entered into, including renewal guarantees contained in outstanding policies, but that no new commitments would be undertaken.

On November 30, 1977 the Commissioner and the officers of Nationwide gathered at an informal meeting convened to assess the propriety of defendants' actions in this regard. Also in attendance were representatives of Nationwide's independent insurance agents and the chairman of the New Jersey Assembly's Committee on Insurance. Defendants outlined their proposed withdrawal plan, including the steps

that would be taken to assure that they would not run afoul of statutes relating to the renewal rights of terminated agents, see N.J.S.A. 17:22-6.14a. Counsel for defendants emphasized that although the companies would cease to write automobile and fire insurance policies in New Jersey, they did not intend to surrender their licenses to do business in the state. Rather, they would retain these licenses in order to facilitate the servicing of their national accounts. The Commissioner took the position that under the No-Fault Act, defendants could not both refuse to renew existing policies and fail to relinquish their licenses.

After attempting unsuccessfully to amicably settle his dispute with defendants, the Commissioner instituted the present suit in the Chancery Division. See N.J.S.A. 17:32-20.*fn1 He sought both a mandatory injunction ordering defendants to comply with the strictures of N.J.S.A. 17:22-6.14a -- a request since rendered moot by agreement of the parties -- and a declaration that pursuant to N.J.S.A. 39:6A-3 defendants could not retain their licenses should they cease renewing automobile policies due to business losses.

The latter statute provides, in pertinent part, that "[n]o licensed insurance carrier shall refuse to renew the required coverage stipulated by [the No-Fault Act] without the consent to the Commissioner of Insurance." Pursuant to his authority to promulgate "reasonable rules and regulations" to effectuate the purposes of the Act, see N.J.S.A. 39:6A-19, the Commissioner has adopted a regulation setting forth ten grounds for nonrenewal to which he consents. N.J.A.C. 11:3-8.1(e). In the Commissioner's view, none of the grounds sanctions nonrenewals due to falling profits.

Defendants' answer disputed the applicability of N.J.S.A. 39:6A-3 to the facts of this case. In their view, that provision was enacted solely to prevent discriminatory refusals

to renew individual policies; it was not intended to prohibit the wholesale nonrenewal of all of a carrier's automobile policies due to business losses. Moreover, defendants asserted that the No-Fault Act must be read in conjunction with the Agency Termination Law, N.J.S.A. 17:22-6.14a, which, by implication, limits the insurer's obligation to renew under certain circumstances. Defendants also contended that as construed by the Commissioner, the No-Fault Act would (1) run afoul of the contract clauses of the federal and State constitutions; (2) violate due process; and (3) place an unconstitutional condition upon licensure. Finally, defendants maintain that the authority granted the Commissioner by N.J.S.A. 39:6A-3 constituted an undue delegation of legislative authority.

On April 18, 1978, there being no factual issues in dispute, the trial court granted summary judgment in favor of the Commissioner. Sheeran v. Nationwide Mutual Insurance Co., Inc., 159 N.J. Super. 417 (Ch. Div. 1978). Holding that the statute and regulation "should be construed as written[,]" the trial judge concluded that defendants must relinquish their licenses should they refuse to renew their outstanding automobile policies. Each of the defendants' constitutional arguments was rejected,*fn2 and final judgment was entered enjoining defendants from violating the Act.

On appeal, the Appellate Division affirmed substantially for the reasons stated by the trial judge. Sheeran v. Nationwide Mutual Ins. Co., Inc., 163 N.J. Super. 40 (App. Div. 1978). We granted defendants' petition for certification. 79 N.J. 477 (1979).


Before turning to the merits of the respective parties' contentions, we must comment upon the scope of the

injunction issued below. The trial court judgment applies by its terms to "defendants," thereby indicating that both Nationwide and Nationwide Fire must comply with its proscriptions. During oral argument before this Court, however, the Commissioner conceded that the order can properly apply solely to Nationwide inasmuch as the No-Fault Act deals only with the conduct of automobile insurers and Nationwide Fire does not issue any policies of that nature.*fn3 Thus, irrespective of ...

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